Pound erases most of April gains amid worries of Brexit a week ahead of election

The pound has erased most of its April gains in the last week as investors weighed risks of a hung parliament and the UK leaving the European Union ahead of the election.

Last Wednesday (27 April), the sterling touched a two-month high of 1.5499 against the US dollar where the pair was up 2% from the previous week's close. However, the GBP/USD dropped to 1.5133 as of Friday's (1 May) close, translating to a 0.36% loss on the week.

The pound is now targeting 1.5050 and then 1.5000 on the downside and a break of 1.4800 will increase the risk of new lows beyond the mid-April six-year low of 1.4565.

Traders said it is not concerns about economic policies of the new government but worries related to the UK's membership of the EU that have weighed down the UK currency in the penultimate week of the election.

Conservatives have called for a referendum to decide the future of UK-EU relations and a win by that side will likely see a sharp slide in stocks and the currency.

Markets are always concerned about elections and the risk of a change in economic policies. This time, however, fears are related to the continuity of the UK in the EU.

Such an exit will increase risks to financial markets, similar to the impact of the Scottish referendum. The FTSE 100 and sterling suffered a big fall ahead of the election.